Comoros consists of an
archipelago of islands—Anjouan (Ndzuwani), Grande Comore (N’gazidja), and Moheli
(Mwali)—which is located at the northern end of the Mozambique Channel. Grande
Comore is the largest and youngest of the islands. The archipelago is the
result of volcanic action along a fissure in the seabed running west-northwest to
east-southeast.

In 2012, the only mineral
commodities produced in Comoros continued to be small quantities of common
building materials that were used for domestic consumption. The demand for
cement, petroleum products, and steel was met through imports. Import dependence and deforestation may lead to
development of the country’s geothermal resources.

The Government of Comoros announced in 2012 that it had awarded its
first petroleum exploration and production license to Bahari Resources Ltd., which was a privately owned company based in
Kenya, and was taking the first steps to develop its petroleum exploration
strategy. The exploration area has acreage adjacent to the offshore Area 1 and offshore
Area 4 of Mozambique’s Rovuma Delta where Eni S.p.A of Italy and Anadarko
Petroleum Corp. of the United States had made significant natural gas discoveries.
Bahari Resources planned to undertake a phased seismic and drilling program
within the licensed area. The Government also announced that it hoped to have a
Petroleum Code in place by yearend 2013.

The Republic of Mauritius, which
is located east of Madagascar, consists of the main island of Mauritius, the smaller
island of Rodrigues, and two smaller groups of islands. All the islands are of
volcanic origin and are surrounded by coral reefs.

In 2012, the country had few
mineral resources, and the mineral industry of Mauritius was a negligible
factor in its economy. Historically, mineral output consisted of basalt for construction,
coral sand, lime from coral, and solar-evaporated salt. Small organic phosphate
fertilizer (guano) resources occur on the islands of Agalega, Cargados, and
Rodrigues. Imported fuel oil was the main source of energy used for electricity
generation Mauritius’ main mineral
commodity imports were lubricants and mineral fuels and related materials.

NAIROBI, Aug 19, 2013 (Reuters) – Seychelles and
Mauritius plan to jointly explore for petroleum in an area in the Indian Ocean
that they both own.

East
Africa has become a focal point for exploration after oil discoveries in Uganda
and Kenya and natural gas deposits in Tanzania and Mozambique.

"An
Authority will be established to deal with the Licensing and to oversee the
activities in the Joint management Area. All revenues will be split
50:50," Eddy Belle, chief executive officer of Seychelles upstream
regulator PetroSeychelles said in an emailed response to questions from
Reuters.

"Mauritius
and Seychelles are still working on the legal framework that will dictate oil
exploration and exploitation in the Joint Management Area (JMA). No deadline
has been set for the opening of the area."

The
two island nations received permission in 2012 from the United Nations for an
extended continental shelf off their respective coasts, estimated to measure
396,000 square km. The granting of the joint exploration rights was meant to
forestall any future maritime territorial disputes.

In
June, Seychelles invited oil and gas companies to bid for exploration blocks,
bringing to an end a two-year moratorium, and introducing new rules for bidders
after completing a review of laws regulating the sector.

So
far, Afren Plc and Australia's WHL Energy are the only companies holding
exploration licences in Seychelles, an archipelago of islands northeast of
Madagascar.

PetroSeychelles
said in early August it had already received two new applications under the
newly introduced Open File Licensing Initiative, which were undergoing due
diligence before proceeding to the next stage of evaluation.

(Reporting by George Obulutsa)

Reunion

Reunion is a volcanic island located about 200 kilometers southwest
of Mauritius. Administratively, it is an overseas department of France, and, as
such, is part of the euro area.

Mineral production represented only a very small part of the
economy of Reunion in 2012, although quantitative information on mineral
production was not available. Production of aggregates, cement, and seacoast
coral sand was believed to meet local consumption needs. Reunion had no
identified resources of coal or petroleum; all demand for metals, mineral fuels,
and petroleum products was met through imports.

The Seychelles archipelago, which
comprises 74 coralline islands and the Mahe group of 41 granitic islands, lies
in the western part of the Indian Ocean.The Seychelles lies just south of the
Equator in the Southwest Indian Ocean and at the northwestern part of the
“boomerang” shaped Mascarene Ridge. It comprises over 115 islands of a total
land area of 445 sq. km spread in an Exclusive Economic Zone of approximately
1.33 million sq.km.

The
outcrop geology is quite simple comprising granite intruded in places by
basaltic dykes. This makes the Seychelles unique among mid-oceanic islands and
it is this fact that attracted geoscientists to conduct geophysical
investigations in the Seychelles in the late sixties.

These
granites have been dated and they are Precambrian in age at750 million years old. It is generally accepted in the scientific
community that the islands are the emergent peaks of a microcontinent that once
formed part of the super continent of Gondwana. The exact extent of this
microcontinent is currently still unknown but there is evidence to support a
southeasterly extension at least as far as the Saya de Malha Bank.

Seychelles is not a globally
significant mineral producer or consumer. Production of granite, gravel, and
salt was limited and not reported. Other mineral production consisted mostly of
unreported quantities of construction materials. Small quantities of an organic
phosphate fertilizer (guano) was occasionally mined but also was not reported
by the Government. Seychelles had no identified resources of coal, natural gas,
or petroleum. All demand for mineral fuels and petroleum products was met by
imports

The mineral industry is regulated
by the Ministry of Industry. The Mineral Ordinance, 1962, governs mineral
extraction and mining.

The petroleum potential of the entire Seychelles
region continued to be promoted by the Government’s Seychelles Petroleum Co.(Sepec). Although multinational companies have explored the waters around the
islands off and on for several years, no commercial quantities of natural gas
or petroleum had been found as of yearend 2012. In 2012, WHL Energy Ltd. of
Australia completed a comprehensive geologic and technical review of its
Seychelles license. These studies indicated a potential for petroleum in WHL
Energy’s 21,426 square kilometer acreage. The studies included the reprocessing
of existing seismic data and rebuilding the hydrocarbon basin models.

Currently, there are two oil companies exploring in
Seychelles and these are AFREN, a UK listed company, and WHL Energy – an
Australian listed company. Both these companies have drilling obligations.
AFREN has recently completed a 3-D seismic acquisition program and WHL energy
will also conduct a seismic infill or 3D programme before drilling.

“Fast-track” data from
3D seismic survey in Seychelles waters is encouraging, says Australian oil
company WHL

Australian oil
company, WHL Energy, has described as “encouraging” preliminary
data that has become available as a result of a 3D seismic survey carried out in its Seychelles offshore asset
between June and July this year.

The seismic survey of an exploration block known as Junon, 115
kilometres southeast of the main Seychelles island of Mahé was undertaken by
its partner FTSE-listed Ophir Energy.

Dolphin Geophysical, a
Norwegian service company won the contract for the survey which was conducted
by their 3D vessel, the Polar Duchess.

Ophir Energy which is involved in oil and gas exploration
in East and West Africa with interests in countries including Ghana, Gabon,
Somaliland and Kenya, signed a farm-in deal with Australian oil company
WHL in March.

Under the agreement
Ophir stands to earn a 75 percent stake in WHL's offshore Seychelles assets in
return for an investment of up to $17.0 million on exploration, including the
conducting of some 1500 km² of 3D seismic surveying.

In a press statement
issued today, WHL Energy says an initial review of the “fast-track” data volume from the
Junon 3D seismic survey that it has received is encouraging “in that
the key prospects identified on the previous 2D seismic data can be interpreted
on the fast track volume.”

WHL undertook a 2D seismic survey when it first acquired its Seychelles
exploration permits.

The data now needs to
be fully processed and WHL has indicated that an initial interpretation should
be available by December this year.

“It is pleasing to see
the progress with the investigation of the high potential Seychelles project
continue utilising the latest technology available,” said David Rowbottam, the
Managing Director of WHL Energy, in the press statement.

“While this initial
seismic volume of the Junon 3D seismic data is very early stage with a lot of
state-of-the art processing and interpretation yet to be undertaken, it is
encouraging that the key geological features noted in the earlier 2D seismic
can be interpreted on the fast track 3D seismic volume.”

The state owned
company responsible for regulating the hydrocarbon sector of the Indian Ocean
archipelago, PetroSeychelles, told SNA that they will have access to the
“fast track” data shortly.

“It is encouraging
news. PetroSeychelleswill nevertheless undertake its own
interpretation of the preliminary data that has become available while we wait
for the data to be fully processed and get the final interpretation,” the Chief
Executive Officer of PetroSeychelles Eddie Belle told SNA.

Once fully interpreted
that data is expected to give the investors a better indication of whether
drilling should commence around the surveyed areas and where it should take
place.

Since the beginning of
this year oil exploration in the Seychelles waters has been attracting
more interest with several foreign companies currently involved in collecting
seismic data.

Apart from the joint
venture between Ophir Energy and WHL Energy,
the state-owned company responsible for regulating the hydrocarbon sector of
the Indian Ocean archipelago, PetroSeychelles, and Japan Oil Gas Minerals Exploration
Company (JOGMEC) also conducted a two-week geochemical survey in
the waters south-west of the main Seychelles island of Mahé in May.

Before that, in April,
Russian seismic vessel ‘Akademik Fersman’ carried out a 2D seismic survey as part of the same JOGMEC-PetroSeychelles
venture.

The CEO of PetroSeychelles, Eddy Belle,
also indicated that the country’s other exploration license holder, AFREN, will
also be conducting an additional survey within the Seychelles’ EEZ early next
year.

As foreign companies
continue prospecting for oil and gas in Seychelles waters', the archipelago has
also recently been accepted as a candidate country by the Norway-based
Extractive Industries Transparency Initiative (EITI) board.

EITIsets the global transparency standard for all
minerals and Seychelles joins 45 other countries worldwide, that are required
to extensively disclose revenues and measures to improve accountability in
exploitation of oil, gas and minerals.

International Oil Companies (IOCs) that have been eyeing East
Africa may want to look beyond established jurisdictions like Kenya and
Mozambique. Across the water that is, to the Indian Ocean islands of
Seychelles, Mauritius and Comoros. All three islands offer interesting
opportunities, but in this short article I'll be concentrating on just one of
them – Seychelles.

General Background and Geology

Seychelles, which lies outside the cyclone belt, enjoys a stable
weather system, with daytime highs ranging between 25 and 31⁰ C. Besides being a high-end tourism
destination, Seychelles has a thriving fishing industry, and a versatile port
that can accommodate container ships and tankers. There's an international
airport, with flights to Europe, Africa, the Middle East and Asia.
Telecommunications are good. The country is politically stable. The population
of some 87,000 is well educated. In short, it's a good place to do business.

From a geological perspective, Seychelles was once part of the
supercontinent Gondwana which, as result a of the rifting that occurred during
the early Permian period, led to the formation of East and West Gondwana, as
well as the micro-continent where the island nation now finds itself.
Seychelles also finds itself in the Seychelles Rifts AU, one of four assessed
geological provinces and assessment units (AUs) along the central coast of East
Africa.

The Petroleum Industry

As things stand, Seychelles is underexplored and only four
exploratory wells have thus far been drilled. The first three wells were
drilled in 1980 and 1981. Although commercial quantities of hydrocarbons were
not discovered, these wells uncovered oil and gas shows and proved that
Seychelles possesses a working hydrocarbon system. In the words of Eddy Belle,
CEO of PetroSeychelles: 'Three wells were drilled by Amoco in 1980 and 1981.
They found all that is necessary to have an oil province." It was not
until 1995 that Enterprise Oil drilled a fourth exploratory well that turned
out to be dry.

The petroleum industry in the Seychelles is a truly nascent
industry that has much exploration ahead of it, as well as a long way to go before
production of domestic hydrocarbon resources might be considered. Notably, the
aforementioned PetroSeychelles - which is an arm of government - oversees the
upstream petroleum sector, promoting and supervising oil exploration programs
in the Seychelles Exclusive Economic Zone. A government-owned company,
Seychelles Petroleum Company (SEYPEC), operates in the downstream sector. It
used to be the case that SEYPEC was the regulator, not PetroSeychelles,
however, since SEYPEC had a share in the companies conducting the exploration,
a conflict existed between that shareholding and its obligations as a
regulator. Consequently, PetroSeychelles was formed. According to Eddy Belle,
PetroSeychelles is well-placed to reduce the amount of time that it may take for
Seychelles to develop its own petroleum industry. To this end, Belle has stated
that "when it comes to decision-making, we're much faster than a
ministry...being an independent body that has its own funds, we move much
faster...because we are also like a national oil company, discussion with other
companies is much better as we are more or less on the same wavelength."

The Indian Ocean islands have, unsurprisingly, seen benefits in
working together closely towards the development of their potential resources.
For example, Seychelles and Mauritius are in agreement regarding a Joint
Licensing Area in terms of which revenue will be split on a 50/50 basis – the
two are hammering out a legal framework for the Joint Management Area (JMA),
and some form of authority that will deal with licensing and oversee activities
in the JMA. Seychelles and Mauritius have also submitted a joint submission to
the Commission on the Limitation of the Continental Shelf (CLCS) for an
extended continental shelf in the south east (Seychelles is itself also seeking
an extension of the CLCS in the north).

Legal Framework

The Petroleum Mining Act says that the state owns petroleum
accumulations within the Seychelles, and that the government can grant
non-exclusive licences to companies to carry out exploration services. The Act
also allows the government to enter into a Petroleum Agreement with an IOC in
terms of which the company is granted exclusive rights to explore for, and
produce, petroleum within Seychelles – the size and location of the acreage to
be included in the agreement will be settled by negotiation, but the size must
not exceed 10,000 square metres.

There is a Model Agreement in existence, and this provides for a
duration of 34 years if commercial discovery occurs. This period is divided
into two phases - an Exploration Phase of nine years (itself made up of three,
three-year periods), and a Development and Production Phase that starts on the
date on which the company decides that it's commercially viable, and continues
for 25 years.

In June 2013 Belle said this: 'We are working on updating our
petroleum model agreement....we're making it in line with what is happening
elsewhere in the world... this is where we will look at models like that of
Norway." Not only has Seychelles turned to the Norwegians for assistance,
it has also sought advice from the Extractive Industry Transparency Initiative
(EITI), the World Bank and the Commonwealth Fund for Technical Cooperation. As
Belle has, rightly, stated: "we're small so we don't have capacity, which
means we have to rely on others who have the capacity to assist us.'

Fiscal Regime

In Seychelles, there are three principal revenue-sharing
mechanisms:

A
royalty of 10% levied on the market value of oil produced and saved during
each month.

Petroleum
Income Tax of 35%, which is paid in accordance with the Petroleum Income
Tax Act 2008.

Petroleum
Additional Profits Tax (PAPT), a resource rent tax levied on cash flows.
The Model Agreement provides for a two-tier structure for PAPT - the first
becomes due once the company has earned a particular threshold rate of
return on its investment, and the second becomes due after the company has
earned an even higher post-tax rate of return. The first threshold rate of
return which triggers payment of PAPT is 15% and the tax rate is 25%, the
second threshold rate and tax rate are negotiable.

Licensing Initiative

As part of its Open File Licensing Initiative, Seychelles
invited IOCs to bid for exploration blocks in June 2012. Two applications were
received, one from Afren Plc, and one from WHL of Australia. Both companies now
hold exploration licences. WHL has already entered the drilling phase and it is
in the process of farming out. Afren has conducted a survey and it is
apparently in the process of identifying a deep-water drilling location, with
drilling due to start in the last quarter of 2014. According to Belle, Petro
Seychelles has been trying to establish links with Sinopec and with CNOOC. He
says that 'they can see the merit here, but there is an element of risk because
we are still frontier...however, once we have the first discovery then there
will be a flood of companies.'

The Open File award process works as follows – an application
for a 10,000 square km area can be made at any time, PetroSeychelles will then
verify if the minimum criteria are met, and there will be a notice of the
application's filing and the solicitation of competitive applications (with a
90-day limit). There is no need to reveal the identity of the applicant or the
proposed terms.

The variables in the Petroleum Agreement should be the
following: area; work program; rental payments; relinquishing terms; fiscal
terms; and training commitment. The Exploration Phase should include the
following: Period 1 (years 1-3), funding for seismic (US$15 million); Period 2
(years 4-6), funding for at least one well (US$25 million); and Period 3 (years
7-9), again funding for at least one well. As for the recommended minimum
acceptable applicant qualifications, these include technical and professional
capacity, as well as financial ability.

Seychelles may be a frontier area, but much data is available,
and interesting leads have been mapped. The data confirms that a working
petroleum system exists, with all the necessary ingredients - source,
reservoir, seals and structures - to make the area an oil and gas province. The
government has recognized the importance that the discovery of petroleum would
have for its objectives, and it has put in place the required legal framework
to facilitate exploration and the eventual production within its marine boundaries.
There are exciting opportunities for companies to bid in the Open File system,
or to farm into existing licences. The Indian Ocean islands seem promising and
Seychelles may well demonstrate that not all the action, so to speak, is to be
found on the continent itself.